SEBI's proposed regulation of private capital aims at derisking system

The proposed regulatory framework for private pools of capital or investment vehicles aims at channelising these investments in the desired space in a regulated manner without posing systemic risk, the Securities and Exchange Board of India (SEBI) said.

Private capital pools include regulated mutual funds at one end of the spectrum to retail investors or high net worth individuals at the other end.

While mutual funds are for small investors, there are private pools of capital of institutions or sophisticated investors who entrust pooled funds to a manager who himself needs to have own funds forming part of the corpus. Such pools of capital could also potentially employ leverage, SEBI pointed out.

In between there may be various specialised funds where risks are graded and investment portfolios designed to suit specific regulatory/other incentives.

However, regulation here does not try to regulate the business risks but aims at providing some minimum ground rules for disclosures, and governance practices to minimise conflict, SEBI said.

Making clear distinction among the various types of private pooled investment vehicles of institutional or sophisticated investors will allow government/ regulator to tailor-make concessions/relaxations that may be desirable for individual kinds of funds such as VCF or SME funds, social venture funds etc.